Supplier Diversity initiatives are digging ever deeper into the supply chain. Today, many buyers are requiring their suppliers meet certain supplier diversity goals in subcontracting as well. We call this Tier 2 reporting.
So, what exactly is Tier 2 reporting? If you supply a large company, some will require you to meet minimum supplier diversity goals in your own business. We’ll use Microsoft as an example. It’s one company that’s integrated Tier 2 reporting as part of its Preferred Supplier program.
Microsoft’s goal is to contract at least 23 percent of it’s annual spend to small and diverse organizations. But the tech giant also has set goals for small business subcontractors. This is where a diverse supplier gets involved.
The company’s subcontracting goals are:
- HubZone, 3 percent
- Minority-Owned, 5 percent
- Service-Disabled Veteran Owned, 3 percent
- Veteran Owned, 3 percent
- Women-Owned, 5 percent
Suppliers must “provide the maximum practical opportunity” for diverse businesses to participate as subcontractors in order to do business with Microsoft.
The company also requires suppliers to submit quarterly reporters to show effort and progress in meeting those subcontracting goals. Generally, those reports will show how much (Tier 2 direct) money a supplier has spent with diverse suppliers on behalf of Microsoft.
Certain small businesses are exempt from this requirement under Microsoft rules, but rules to vary by company.
Our clients are primarily large corporations, construction firms and others for whom supplier diversity is a key business goal and for whom tracking their “secondary” or Tier 2 supplier diversity spending — the spending of their prime vendors — can be difficult.
As your business grows, Tier 2 reporting will likely become a part of doing business with larger buyers. It’s a way of getting an edge over the competition, and standing out as a diverse supplier.